Company Formation Flashcards
Legal personality
And consequences of separate legal personality
Person - natural person(human) or artificial person (company)
In a company members are a separate legal personality separated by the veil of incorporation
Consequences:
Company unlimited liability to debts
Members limited liability to debts
Perpetual succession until wound up
Company can own property
Company can sue and be sued in its name
Lifting the veil
Reasons common law and statutory
May be done to defeat fraud, sharp practices or illegality or:
Produce tax liability
Give entitlement to compensation
Prevent evasion of excise duty
Recognise breakdown of quasi partnership
Prevent evasion of existing contractual
obligations
Reveal national identity
Statutory :
Director disqualified under (Company directors disqualification act 1986)
Plc trades without certificate
Fraudulent trading
Wrongful trading
Types of companies
Unlimited companies - PRIVATE- no limit on member liability, doesn’t need to file accounts (normally)
Companies limited by guarantee- PRIVATE- liability limited to amount members agree to contribute to the companies assets in case of wounding up.
- cannot be registered with share capital
- often charity or trade association
Company limited by shares- PUBLIC OR PRIVATE- Liability limited to nominal value of unpaid shares. (Inc premium payable by current owner)
Re registration
Company may alter its status once as follows,
Limited to unlimited - consent from all company members
Unlimited to limited- by passing a special resolution
Public/private
Liability Share capital Ability to commence trade Public offers Name Loans Directors Company sec Written resolutions AGMs Accounts and reports Small and medium sized companies Appointment of auditors Pre emotion rights Payment shares Reduction of capital Power to redeem or purchase shares out of capital
Liability - must be limited/ may be limited or unlimited
Share capital - authorised minimum 50k/ no minimum
Ability to commence trading- needs trading certificate/ commence once incorporated
Public offers- securities to public (stock exchange)/ not allowed
Name- PLC/ Limited or Ltd (charities exempt)
Loans etc- loans to persons connected to directos and quasi loans and credit transactions to connected person or directos NEED APPROVAL/ do not apply unless associated with PLC
Directors- must have two/ must have one
Company secretary - must have one/ need not
Written resolutions- N/A must be a meeting/ may use instead of meetings
AGMs- must hold / doesn’t need to
Accounts and reports- must lay before general meeting, MUST file 6months / need not, MUST file 9 months
Small and medium sized firms - N/A, may qualify as either and take adv of audit exemptions (small company) and less strict filing rules
Appointment of auditors- must appoint each year if necessary/ existing auditors may be deemed reappointed subject to conditions
Pre emotion right - Not excluded / may be excluded
Payment of shares- additional rules (shares must be 1/4 paid up and valuations for non cash considerations) / not applicable
Reduction of capital - needs special resolution confirmed by the court / need only special resolution and directors solvency statement
Power to redeem or purchase shares out of capital - N/A / may do so subject to company’s articles
Formation documents
Following must be lodged with registrar of companies house (Cardiff or Edinburgh) online or hard copy
(Must ) Memorandum of association - historic record of initial subscribers (wish to form company and take at least ONE share each)
(Must) Application for registration- Name, Address, members liability, company type and domicile
Supporting documents :
Articles of association- if not supplied - DEFAULT applies
Section 9 documents- share capital+ initial share holdings (snap shot)
Statement of guarantee - only for companies limited by guarantee
Statement of proposed officers- Details of first director and first company secretary
Statement of compliance- statutory declaration of compliance
Section 9
Where a company is formed to be limited by shares the following must be provided
Total number of shares taken by subscribers (min 1)
Aggregate nominal value of those shares (par/face value)
Rights and aggregate values for each class of shares
Amounts paid up and to be paid on each class
All companies must provide residential and service addresses for each natural director and secretary aswell as the companies postal adress
Forming a public company
Additional requirement to apply for a trading certificate
It requires the submission of the following evidence:
1) Application stating (among other things) that the nominal value of the companies allotted share capital is not less than 50k (authorised minimum)
2) A statement of compliance (S 762)
Certificate of incorporation is the final and conclusive proof of the effective birth date of a Company
Off the shelf companies
Buy a company that has already been incorporated
Advantages :
Ready to use
Easier to get financing
Faster and cheaper
Disadvantages:
Company name and articles may not suit owner
(Can change name and articles usually default)
Promoters and duties
Anyone who makes business preparations for a company (not someone acting in professional capacity eg accountant)
Duties:
Exercise reasonable skill and care
Fiduciary duties as an agent, duty to: Account Avoid conflict of interest Disclose Not make a secret profit
Any breach allows a company to rescind contracts and recover monies from promoter
Problematic areas for promoters
Pre incorporation expenses: no automatic right to reimbursement - must be expressly agreed with subsequent directors
Pre incorporation contracts: contracts signed on behalf of company before incorporation fall upon the promoter
To avoid liability promoter can:
- Novate contracts (formal agreement in writing)
- draft contracts
- wait till incorporation
- purchase off shelf company
Company cannot enforce contract and is not Bound by it, cannot ratify either
Company name
companies act 2006 Name restrictions
Cannot :
- Be offensive
- Criminal offence (racist)
- Sensitive or suggest connection to central or local government- “British or international” require approval from Secretary of State
- Be same as existing company
Must end plc or limited/ltd
Name can be changed by special resolution and notifying registrar and Secretary of State
Name must be displayed in certain locations and on certain documents
Articles of association
Form part of companies constitution along with special resolution and agreements
Constitution binds company and members but not to third parties
If a contract contains no specific term on a point but the articles do, then the contract may be deemed to incorporate the articles to that extent
Can alter articles by special resolution (75%)
Where articles contain provisions for entrenchment they can only be changed through agreement of all member’s or by court
Copy of amended article to be sent to registrar in 15 days
Member cannot be bound by alterations making him buy more shares or increase liability
